Item 2. Management’s Discussion and Analysis
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .
Caution Concerning Forward-Looking Statements
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on March 29, 2023 (the “Annual Report”) and our unaudited interim condensed consolidated financial statements and related notes appearing in this Quarterly Report on Form 10-Q (the “Quarterly Report”). Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to the Company’s plans and strategy for its business, includes forward looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Forward-looking statements can be identified by words such as “future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “will,” “would,” “could,” “can,” “may,” and similar terms. Forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results discussed in the forward-looking statements. As a result of many factors, including those factors set forth in Part I, Item 1A of the Annual Report under the heading “Risk Factors”, our actual results could differ materially from the results described in, or implied by, the forward-looking statements contained in the following discussion and analysis.
The following discussion should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2022 and the condensed consolidated financial statements and accompanying notes included elsewhere in this report.
Overview
We are a commercial-stage biopharmaceutical company focused on our only product candidate PEDMARK ® . On September 20, 2022, we received approval from the FDA for PEDMARK ® (sodium thiosulfate injection) to reduce the risk of ototoxicity associated with cisplatin in pediatric patients one month of age and older with localized, non-metastatic solid tumors. This approval makes PEDMARK ® the first and only treatment approved by the FDA in this area of unmet medical need. On October 17, 2022, we announced commercial availability of PEDMARK ® in the United States.
We sell our product through an experienced field force including Regional Pediatric Oncology Specialists and medical science liaisons who are helping to educate the medical communities and patients about cisplatin induced ototoxicity and our programs supporting patient access to PEDMARK ® .
Further, we have established Fennec HEARS™, a comprehensive single source program designed to connect PEDMARK ® patients to both patient financial and product access support. The program offers assistance and resources, regardless of insurance type, that can address co-pays or lack of coverage when certain eligibility requirements are met. Fennec HEARS™ also provides access to care coordinators that can answer insurance questions about coverage for PEDMARK ® and provide tips and resources for managing treatment.
We received Orphan Drug Exclusivity for PEMARK in January 2023, which provides seven years of market exclusivity from its FDA approval on September 20, 2022 until September 20, 2029. We currently have four patents listed for PEDMARK ® in the FDA’s Orange Book. In March 2020, the United States Patent and Trademark Office (“USPTO”) allowed Patent No. 10,596,190 (“US ‘190 Patent”), which is exclusively in-licensed from Oregon Health & Science University (“OHSU”) and relates to a method using our PEDMARK ® product. In September 2022, the USPTO issued Patent No. 11,291,728 (the “US ‘728 Patent”), in December 2022, the USPTO issued Patent No. 11,510,984 (“US ‘984 Patent”) and in April 2023, the USPTO issued Patent No. 11,671,793 (“US ‘793 Patent”) that covers PEDMARK ® pharmaceutical formulation. The US ‘728 Patent, US ‘984 Patent and US ‘793 Patent will expire in 2039 and the US ‘190 Patent will expire in 2038. We are also pursuing additional patent applications in both the U.S. and internationally for PEDMARK ® .
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PEDMARK ® Product Overview
PEDMARK ® is the first and only therapy approved by the U.S. Food and Drug Administration (“FDA”) indicated to reduce the risk of ototoxicity associated with cisplatin treatment in pediatric patients with localized, non-metastatic, solid tumors. It is a unique formulation of sodium thiosulfate in single-dose, ready-to-use vials for intravenous use in pediatric patients. PEDMARK ® is also the only therapeutic agent with proven efficacy and safety data with an established dosing paradigm, across two open-label, randomized Phase 3 clinical studies, the Clinical Oncology Group (“COG”) Protocol ACCL0431 and SIOPEL 6.
In the U.S. and Europe, it is estimated that more than 10,000 children annually may receive platinum-based chemotherapy. The incidence of ototoxicity depends upon the dose and duration of chemotherapy, and many of these children require lifelong hearing aids. There is currently no established preventive agent for this hearing loss and only expensive, technically difficult, and sub-optimal cochlear (inner ear) implants have been shown to provide some benefit. Infants and young children that suffer ototoxicity at critical stages of development lack speech language development and literacy, and older children and adolescents lack social-emotional development and educational achievement.
PEDMARK ® has been studied by co-operative groups in two Phase 3 clinical studies of survival and reduction of ototoxicity, COG ACCL0431 and SIOPEL 6. Both studies have been completed. The COG ACCL0431 protocol enrolled childhood cancers typically treated with intensive cisplatin therapy for localized and disseminated disease, including newly diagnosed hepatoblastoma, germ cell tumor, osteosarcoma, neuroblastoma, medulloblastoma, and other solid tumors. SIOPEL 6 enrolled only hepatoblastoma patients with localized tumors.
Cisplatin Induced Ototoxicity
Cisplatin and other platinum compounds are essential chemotherapeutic agents for the treatment of many pediatric malignancies. Unfortunately, platinum-based therapies can cause ototoxicity, or hearing loss, which is permanent, irreversible, and particularly harmful to the survivors of pediatric cancer.
The incidence of ototoxicity depends upon the dose and duration of chemotherapy, and many of these children require lifelong hearing aids or cochlear implants, which can be helpful for some, but do not reverse the hearing loss and can be costly over time. Infants and young children that are affected by ototoxicity at critical stages of development lack speech and language development and literacy, and older children and adolescents often lack social-emotional development and educational achievement.
European Marketing Authorization Application
In August 2018, the Pediatric Committee (“PDCO”) of the European Medicines Agency (“EMA”) accepted our pediatric investigation plan (“PIP”) for sodium thiosulfate with the trade name Pedmarqsi for the condition of the prevention of platinum-induced hearing loss. An accepted PIP is a prerequisite for filing a Marketing Authorization Application (“MAA”) for any new medicinal product in Europe. The indication targeted by our PIP is for the prevention of platinum-induced ototoxic hearing loss for standard risk hepatoblastoma (“SR-HB”). Additional tumor types of the proposed indication will be subject to the Committee for Medicinal Products for Human Use (“CHMP”) assessment at the time of the MAA. No deferred clinical studies were required in the positive opinion given by PDCO. We were also advised that Pedmarqsi is eligible for submission of an application for a Pediatric Use Marketing Authorization (“PUMA”). A PUMA is a dedicated marketing authorization covering the indication and appropriate formulation for medicines developed exclusively for use in the pediatric population and provides market protection up to 10 years. Therefore, this decision allows us to proceed with the submission of a PUMA in the European Union (“EU”) with incentives of automatic access to the centralized procedure and up to 10 years of data and market protection. In February 2020, we announced that we had submitted a MAA for the prevention of ototoxicity induced by cisplatin chemotherapy patients one month to < 18 years of age with localized, non-metastatic, solid tumors. In March 2023, the CHMP issued a positive opinion and recommended granting a Marketing Authorization for Pedmarqsi for the prevention of ototoxicity (hearing loss) induced by cisplatin chemotherapy in patients one month to <18 years of age with localized, non-metastatic, solid tumors. When formally approved by the European Commission, Pedmarqsi will be the first and only treatment approved in the European Union
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EU to address this area of significant unmet medical need. The CHMP’s recommendation will now be reviewed by the European Commission and ratification of the CHMP recommendation is expected by early June 2023.
Now that we have obtained applicable regulatory approval to sell PEDMARK ® in the United States and a positive CHMP opinion in the EU, we recognize there may still be a need to establish collaborations that provide us with up-front payments, licensing fees, milestone payments, royalties, or other revenue.
Liquidity
We generated a net loss of approximately $6.1 million for the three months ended March 31, 2023, and a net loss of $3.7 million for the same period in 2022. As of March 31, 2023, our accumulated deficit was approximately $209.3 million ($203.2 million at December 31, 2022).
We believe that our cash and cash equivalents as of March 31, 2023, which totaled $18.4 million, cash from product sales, plus the remaining Petrichor Financing of $20 million in convertible notes subject to mutual agreement between the Company and Petrichor (see Note 1 and Note 7 to our unaudited interim condensed consolidated financial statements contained elsewhere in this Quarterly Report), will be sufficient to meet our cash requirements through at least the next twelve months. Our projections of our capital requirements are subject to substantial uncertainty, and more capital than we currently anticipate may be required thereafter. To finance our continuing operations, we may need to raise substantial additional funds through either the sale of additional equity, the issuance of debt, the establishment of collaborations, the out-license or sale of certain aspects of our intellectual property portfolio or from other sources.
Our operating expenses will depend on many factors, including the progress of our commercialization efforts abroad and efficiency of our operations and current resources. Our research and development expenses, which include expenses associated with our clinical trials, drug manufacturing to support clinical programs, consulting fees, sponsored research costs, toxicology studies, license fees, milestone payments, and other fees and costs related to the commercialization of our product, will depend on the availability of financial resources, the results of our clinical trials, and any directives from regulatory agencies, which are difficult to predict. Our general and administration expenses include expenses associated with the compensation of employees, stock-based compensation, professional fees, consulting fees, insurance and other administrative matters associated in support primarily of our commercialization of PEDMARK ® .
Results of Operations
Three months ended March 31, 2023 versus three months ended March 31, 2022:
Three Months Ended
Three Months Ended
In thousands of U.S. Dollars
March 31, 2023
%
March 31, 2022
%
Change
PEDMARK product sales, net
$
1,677
$
—
$
1,677
Cost of product sales
(95)
—
(95)
Gross profit
1,582
—
1,582
Operating expenses:
Research and development
4
0
%
1,437
41
%
(1,433)
Selling and marketing
2,531
37
%
—
—
2,531
General and administration
4,317
63
%
2,109
59
%
2,208
Total operating expenses
6,852
100
%
3,546
100
%
3,306
Loss from operations
(5,270)
(3,546)
(1,724)
Unrealized loss on securities
(30)
(91)
61
Other gain/(losses)
9
(61)
70
Amortization expense
(72)
(7)
(65)
Interest expense
(798)
—
(798)
Interest income
109
9
100
Net loss
$
(6,052)
$
(3,696)
$
(2,356)
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Research and development expenses decreased by $1,433 for the three months ended March 31, 2023, compared to the same period in 2022. The Company’s research and development activities for the first three months of 2023 consisted of costs associated with investigator initiated clinical trials. During the same period in 2022 and prior to approval of PEDMARK, manufacturing costs pertaining to PEDMARK were expensed to R&D expense in the period incurred, and following approval are reflected in inventory. Selling and marketing expenses were $2,531 for the three months ended March 31, 2023. Selling and marketing expenses include remuneration of our sales and marketing employees, dollars spent on marketing campaigns (sponsorships, trade shows, presentations, etc.), and any activities to support marketing and sales activities. General and administrative expenses increased by $2,208 compared to the same period in 2022, which was primarily driven by an increase of non-cash employee remuneration of $656, an increase of ongoing product support such as quality control and assurance of $482, an increase of professional and legal expenses of $488, and an increase of salaries and benefits of $432.
Interest expense was up $740 compared to the same period in 2022. This increase is associated with higher interest rates and $20,000 more in funded debt than in the same period in 2022. The Company holds shares of Processa (NASDAQ: PCSA) which are marked to market each balance sheet date and unrealized gains or losses are recognized at that time. The unrealized loss on those shares for the three months ended March 31, 2023 was $30. Other losses were driven mainly by losses related to the Company’s foreign currency transactions. The Company has vendors that transact in Euros, Great British Pounds and Canadian Dollars. There was an decrease of $70 in other losses for the three months ended March 31, 2023, compared to the same period in 2022. Amortization expense is also a non-cash expense and relates to amortization of the deferred issuance cost of the loan facilities with Petrichor. Amortization expense increased by $65 for the three months ended March 31, 2023 compared to the same period in 2022. Interest income was up $100 for the three months ended March 31, 2023, compared to the same period in 2022. This was driven mainly by higher interest rates for the three months ended March 31, 2023 compared to the same period in 2022.
Quarterly Information
The following table presents selected condensed financial data for each of the last eight quarters through March 31, 2023, as prepared under U.S. GAAP (U.S. dollars in thousands, except per share information):
Net (Loss)/Income for the
Basic Net (Loss)/Income per
Diluted Net (Loss)/Income per
Period
Period
Common Share
Common Share
June 30, 2021
$
(4,001)
$
(0.15)
$
(0.15)
September 30, 2021
(4,185)
(0.16)
(0.16)
December 31, 2021
(4,427)
(0.18)
(0.18)
March 31, 2022
(3,696)
(0.14)
(0.14)
June 30, 2022
(5,075)
(0.19)
(0.19)
September 30, 2022
(8,089)
(0.31)
(0.31)
December 31, 2022
(6,857)
(0.26)
(0.26)
March 31, 2023
(6,052)
(0.23)
(0.23)
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Liquidity and Capital Resources
As at
As at
Selected Asset and Liability Data (thousands):
March 31, 2023
December 31, 2022
Cash and equivalents
$
18,390
$
23,774
Other current assets
3,272
2,954
Current liabilities
4,020
4,609
Working capital (1)
17,642
22,119
(1) [Current assets – current liabilities]
Selected Equity:
Common stock and additional paid in capital
200,670
199,388
Accumulated deficit
(209,252)
(203,200)
Stockholders’ deficit
(7,339)
(2,569)
Cash and cash equivalents were $18,390 at March 31, 2023 and $23,774 at December 31, 2022. The decrease in cash and cash equivalents between March 31, 2023, and December 31, 2022, is the result of cash outlays for operating expenses related to the promotion of our product, small amounts of research and development and general and administrative expenses, which were offset by cash inflows from product sales of $1,220 and cash inflows of $213 from various option exercises. There was an increase of $318 in other current assets between March 31, 2023, and December 31, 2022, and a decrease in current liabilities of $589. The overall result was a reduction in working capital of $4,478.
The following table illustrates a summary of cash flow data for the three month periods of March 31, 2023 and 2022:
Selected Cash Flow Data
Three Months Ended
Three Months Ended
(dollars and shares in thousands)
March 31, 2023
March 31, 2022
Net cash used in operating activities
$
(5,577)
$
(2,856)
Net cash provided by investing activities
—
—
Net cash provided by financing activities
193
15
Net cash flow
$
(5,384)
$
(2,841)
Net cash used in operating activities for the three months ended March 31, 2023 primarily reflected a net loss of $6,052. The three month loss was adjusted for the add back of non-cash items consisting of $1,089 in stock-based compensation expense, with unrealized loss on securities of $30 and amortization expense of $72 for the three months ended March 31, 2023. For the three months ended March 31, 2023, there was a net change in prepaid and other assets of $318; coupled with a net decrease in current liabilities of $589. Three month negative cash flows from operating activities were $5,799 and $2,856, respectively, for the periods ended March 31, 2023 and 2022. Net cash provided by financing activities for the three months ended March 31, 2023 was $193. During the same period in 2022, there was various option exercises resulting in cash inflows from financing activities of $15. Net cash flows from the three month-periods ended March 31, 2023 and 2022, were negative $5,384 and $2,841, respectively.
We continue to pursue various strategic alternatives including collaborations with other pharmaceutical and biotechnology companies. Our projections of further capital requirements are subject to substantial uncertainty. Our working capital requirements may fluctuate in future periods depending upon numerous factors, including: our ability to obtain additional financial resources; our ability to enter into collaborations that provide us with up-front payments, milestones or other payments; results of our research and development activities; progress or lack of progress in our preclinical studies or clinical trials; unfavorable toxicology in our clinical programs; our drug substance requirements to support clinical programs; change in the focus, direction, or costs of our research and development programs; headcount expense; the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing our patent claims; competitive and technological advances; the potential need to develop, acquire or license new technologies and products; our business development activities; new regulatory requirements implemented by regulatory authorities; the timing and outcome of any regulatory review process; and commercialization activities, if any.
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Outstanding Share Information
Our outstanding share data as of March 31, 2023 and December 31, 2022 was as follows (in thousands):
March 31,
December 31,
Outstanding Share Type
2023
2022
Change
Common shares
26,411
26,361
50
Warrants
150
150
—
Stock options
5,032
4,539
493
Total
31,593
31,050
543
Financial Instruments
We invest excess cash and cash equivalents in high credit quality investments held by financial institutions in accordance with our investment policy designed to protect the principal investment. At March 31, 2023, we had approximately $5.7 million in our cash accounts and $12.7 million in savings and money market accounts. While we have never experienced any loss or write down of our money market investments since our inception, the amounts we hold in money market accounts are substantially above the $250,000 amount insured by the FDIC and may lose value.
Our investment policy is to manage investments to achieve, in the order of importance, the financial objectives of preservation of principal, liquidity and return on investment. Investments may be made in U.S. or Canadian obligations and bank securities, commercial paper of U.S. or Canadian industrial companies, utilities, financial institutions and consumer loan companies, and securities of foreign banks provided the obligations are guaranteed or carry ratings appropriate to the policy. Securities must have a minimum Dun & Bradstreet rating of A for bonds or R1 low for commercial paper. The policy also provides for investment limits on concentrations of securities by issuer and maximum-weighted average time to maturity of twelve months. This policy applies to all of our financial resources. The policy risks are primarily the opportunity cost of the conservative nature of the allowable investments. Until we are cash flow positive from operations, we have chosen to avoid investments of a trading or speculative nature.
We classify fixed income investments with original maturities at the date of purchase greater than three months which mature at or less than twelve months as current. We carry investments at their fair value with unrealized gains and losses included in other comprehensive income (loss); however, we have not held any instruments that were classified as short-term investments during the periods presented in this Quarterly Report.
Off-Balance Sheet Arrangements
Since our inception, we have not had any material off-balance sheet arrangements.
Contractual Obligations and Commitments
None, other than the OHSU royalty agreement mentioned in the financial statements, and the severance amounts as disclosed in our 2022 annual report (10-K) published March 29, 2023.
Critical Accounting Policies and Estimates
A summary of our critical accounting policies and use of estimates are presented in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operation” of our Annual Report. There have been no material changes to our critical accounting policies and use of estimates during the three months ended March 31, 2023.
Item 3. Controls and Procedures .
(a) Evaluation of Disclosure Controls and Procedures .
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We maintain "disclosure controls and procedures," as such term is defined in Rule 13a-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. Based on this evaluation at the end of the period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer and our Chief Financial Officer, have concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2023.
(b) Changes in Internal Control over Financial Reporting.
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.
PART II: OTHER INFORMATION
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.